MGT101 Financial Accounting Assignment 2 Solution Spring 2013

On 1stOctober 2012, the machinery has become obsolete and is sold for Rs. 60,140.

Company charged the deprecation @20% per annum on plant and machinery. It is the policy of the company to charge the deprecation of all fixed assets on the basis of use under diminishing balance method.

Required:

1. Prepare depreciation schedule for five years showing the four columns i.e. Years, Depreciation expense, Accumulated depreciation and Book value.

2. Calculate the profit or loss on disposal of machinery.

Solution:

Prepare depreciation schedule for five years showing the four columns i.e. Years, Depreciation expense, Accumulated depreciation and Book value.

Years

Depreciation expense

Accumulated depreciation

Book value.

01-January-2008

250,000

31-December-2008

50,000

50,000

200,000

31-December-2009

40,000

90,000

160,000

31-December-2010

32,000

122,000

128,000

31-December-2011

25,600

147,600

102,400

31-December-2012

15,360

162,960

87,040

Calculate the profit or loss on disposal of machinery.

Book value after five years Rs. 87,040

Sale price Rs. 60,140

Profit on sale Rs. 26,900(87,040– 60,140)

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QUESTION-02

Required:

Based on the above information, you are required to calculate the following for the period ended on 31

stDecember 2012:

1. Net sales

2. Gross purchases

3. Administration expenses

4. Financial expenses

5. Current assets

6. Current liabilities

Following information is available of a business concern for the year of 2012.

Items

Rs.

Gross sales

900,000

Return inwards

50,000

Return outwards

40,000

Net purchases

950,000

Gross loss

200,000

Advertising expenses

200,000

Distribution expenses

100,000

Salaries of clerical staff

300,000

Office rent

250,000

Bank charges

50,000

Long term loan taken from bank on 1

stJanuary @ 12% per annum

500,000

Cash

90,000

Accounts receivable

60,000

Plant and machinery

300,000

Building

900,000

Accounts payable

35,000

Short term borrowings

25,000

Solution:

1. Net sales:

=Sales-Sales Return

=900,000 – 50,000

=850,000

2. Gross purchases:

=Net Purchase + Purchase Return

=950,000 + 40,000

=990,000

3. Administration expenses:

=Salaries of clerical staff+ Office rent

=300,000 + 250,000

=550,000

4. Financial expenses:

= Long term loan taken from bank on 1st January @ 12% per annum + Bank charges